4 Common Tax-Filing Mistakes and How to Avoid Them (2024)

Generally speaking, all income is taxable unless it's specifically excluded, as is the case with certain gifts and inheritances. In most instances, the income you earn will be reported to both you and the government on an information return, such as a Form 1099 or W-2. If the income you report doesn't match the IRS's records, you could face problems down the road—so be sure you include the income from all of the following forms that are applicable to your situation:

• 1099-B: The form on which financial institutions report capital gains.
• 1099-DIV: The form on which financial institutions report dividends.
• 1099-MISC: The form used to report various types of income, such as royalties, rents, and numerous other types of income.
• 1099-NEC: The form used to report payments to nonemployees, such as independent contractors.
• 1099-R:The form on which financial institutions report withdrawals from tax-advantaged retirement accounts.
• Form 1099-INT: The form on which financial institutions report interest income.
• Form SSA-1099:The form on which the Social Security Administration reports Social Security benefits (a portion of which may be taxable, depending on your level of income).
• Form W-2:The form on which employers report total annual compensation, payroll taxes, contributions to retirement accounts, and other information.

If you receive an inaccurate statement of income, immediately contact the responsible party to request a corrected form and have them resend the documents to both you and the IRS as soon as possible to avoid delaying your tax return. Also, be aware that you must report income for which there is no form, such as renting out your vacation home.

When you sell an investment, you'll need to know both thecost basis(what you paid for the investment) and the sale priceto determine your net gain or loss. The cost basis of your investment may need to be adjusted to account for commissions, fees,stock splits, or other events, which could help reduce your taxable gain or increase your net loss.

Financial institutions are required to adjust your investments' cost basis and provide that information on a Form 1099. However, brokerages aren't required to report the cost basis for investments purchased prior to a certain date, which means you'll be responsible for supplying that information (see the table below). Be sure to keep records of all investment purchases and sales—even those for which your brokerage is responsible.

Sometimes, the simplest mistakescause the biggest headaches. For example, entering the wrong Social Security or tax ID number can cause major problems in processing your return. To guard against such missteps:

• Review all numbers on your return for accuracy.
• Check that all the names on the return are spelled correctly.
• Compare this year's tax return with the last year's, and make sure that there are no unexplained differences or items that were left off.
• Double-check that you've signed and dated all relevant pages.

Using tax-preparation software can increase the overall accuracy of your return and help identify all the deductions you may be entitled to. However, even the best tax software won't catch basic inputting errors. Consider enlisting a tax professional to give your return a second look or even prepare it from start to finish.